If you are given the benefit to claim reimbursement from your employer the expenses for you to employ gardeners or domestic servants or to claim reimbursement for your mobile phone charges, it is advisable not to make use of them.

Instead, you can request your employer to employ these gardeners or domestic servants to work for you and register the mobile number under your employer’s name. Both the ways gives the same benefits but the tax implications are different for each of the methods.

If you employ the gardeners and domestic servants yourself or register your mobile phone number under your name and claim reimbursement for these expenses from your employer, your employment income will include the full amount your employer reimburse you. This type of reimbursement will fall under the category of perquisite under section 13(1)(a) of Income Tax Act(ITA).

On the other hand, instead of you employing these gardeners or domestic servants by yourself or registering your mobile phone number under your name, getting your employer to do them will render these benefits to fall under the category of ‘benefits in kind’ under section 13(1)(b) of the ITA. Under these section, the amount that will be included in your employment income is as follows(given in annual value):

a) Mobile telephone (rental & charges) : RM 600

b) Gardeners : RM 3600

c) Domestic servants : RM 4800

If you look carefully, the annual value that will be included in your employment income is much lesser than the actual expenses that you will incur in having these benefits by yourself. Nowadays, employing a maid is not less than RM 600/month, if you were to employ a maid by yourself and claim reimbursement from your employer, your employment income will be added with the full amount of RM 600/month. But if you were given a maid by your employer, your employment income will only be added with RM400/month, so you will save RM 200/month from being included in your taxable income. This is absolutely a great method to reduce the amount of tax we will be required to pay, however, the question is, how many employers will come forward to do so? Well, it depends, but if you have such option don’t waste it.

For more info on employment income visit hasil.org.my

If you enjoyed this post, make sure you subscribe to my RSS feed!

What determines the individual tax residency status in Malaysia?

That is question which we will try to answer in this post but before that it is advisable to read the distinction between the status of a tax resident and a non-tax resident.

Now, if we refer to section 7(1) of our Income Tax Act 1967 we will get the answer to our question. It is explained there that the individual tax residency status can be obtained by four ways which are detailed in subsection (1)(a)-(1)(d). But, before we move further to look into the four circumstances, lets make clear the concept of

a)basis year; and

b)year of assessment.

Basis year is the period for which we are referring in assessing our income tax whereas year of assessment is a point in time where we are charged for income tax for the basis year. If you don’t understand, refer to the following example for further explanation of these concepts.

‘Lets say, it is the year 1998 and you are reporting to the Inland Revenue Board(LHDN) for the income you received in the year 1997. The basis year for this example would be the year 1997 because this is the period for which you are assessing your income. The year of assessment would be 1998 because this is the time you are being charged for income tax for the basis year of 1997.’ Is it clear now?

Prior to the year 2000, Malaysia charged income tax on a preceding year basis which is some sort like the example above. However, from the year 2000 onwards, Malaysia has shifted from the preceding year basis to current year basis for individual assessments which means both the basis period and the year of assessment are the same. Now we are assessed for income tax in a certain year for the income we receive in that year.

Why we need to understand these concepts is because when we are determining the tax residency status, we will be referring to the basis period instead of the year of assessment, so clear distinction between these concepts is essential.

Now lets get back to our topic.

The four circumstances which render a person to be a Malaysian tax resident are as follows:

1) If a person stays in Malaysia for a period of 182 days or more (need not to be consecutive) for the basis year, that person is considered to be a Malaysian tax resident. Simply said, if you are physically available in Malaysia for a period of 182 days or more, you are a Malaysian tax resident.

2) If a person stays in Malaysia for less than 182 days, but that basis year is linked by or linked to another basis year of at least 182 consecutive days, that person is considered a Malaysian tax resident. However, temporary absence can be taken as forming part of the consecutive 182 days.

3) The third circumstance is, if a person stays for 90 days or more in Malaysia(need not to be consecutive) and he was either:

a) a tax resident in Malaysia, or

b) in Malaysia for 90 days or more;

in any three out of four immediate preceding years, he is deemed to be a tax resident for that basis year.

4) The last way is, if he is not even physically present in Malaysia for that basis year but he is a tax resident of Malaysia in three immediate preceding years and the year following that basis year, he automatically becomes a tax resident for that basis year.

Most of Malaysian citizens usually will be a tax resident from the virtue of section 7(1)(a) by staying in Malaysia for more than 182 days. The other subsections are more relied by those who travel abroad to work or by foreigners who work in Malaysia.

For more information on this topic refer to hasil.org

Hopefully, this post was informative to you. If you have any comments, please don’t hesitate to drop one.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Since I’m studying this course now, I thought of sharing what I’ve learned with everyone else. It is about personal income tax in Malaysia. Since this is a huge topic and I can’t cover them in one single post, I’ve decided to make a few series of post on this topic.

First we will begin with the tax residency status. This status is different from our residency status or citizenship status in Malaysia. This is a residency status from a tax point of view.

So, why is this status very important?

Well, this is the status which will determine how you will be taxed in Malaysia. Now lets look into a few aspects of distinction between a non-tax resident and a tax resident.

1) Income tax rate

A tax resident is charged on a scale rate from 0%-28% based on their chargeable income. On the other hand, a non-tax resident will be charged on a flat rate of 28%. So, if your chargeable income is RM 10000, your income tax is only RM 175 (calculated using the scale rate) if you are a tax resident of Malaysia but if you are a non-tax resident, your income tax is RM 2800.

2) Individual tax relief

A tax resident is entitled for tax reliefs such as personal relief of RM8000, wife, children and parents relief and other reliefs as well. Whereas a non-tax resident in not entitled for such reliefs (except in cases where non-resident relief is applicable)

3) Rebate

If a tax resident’s chargeable income is less than or equals to RM35000, he will be entitled for a tax rebate. This is a rebate from the amount we need to pay. For example, after assessing our income, we are required to pay RM700 as income tax. If we are a tax resident, we will be given a rebate from the RM700 that we need to pay. However, a non-tax resident is not entitled for this rebate.

Above were just a few of the distinctions between a tax resident and a non-tax resident. There are other distinctions too.(Please note that these distinctions might change in future if the government changes its policies.)

After reading the above differences, I am very sure that all of us will want to be a tax resident so that we pay lesser income tax. On my next post on this topic, I’ll further explain how an individual qualifies to be a tax resident.

If you enjoyed this post, make sure you subscribe to my RSS feed!